Tuesday, November 20, 2007

Buying in a Buyers Market

Buying in a Buyers Market... How to Buy The Home You Really Want.

I can hear you now.. "It's a buyers market and I'm a buyer.... what's so difficult"?.... It may surprise you but buying in this market may be a little tougher then you think . A Buyers market can be a harder market to maneuver in then a Sellers Market. I know this sounds crazy but it's true.

In a Sellers real estate market everyone knows where the market and prices are going... upward. You know you need to make a quick decision on a home you want. You know there will be a lot of competition. You know there will not be much inventory in any price range. The key is to try and outbid the other offers yet not go too crazy. It's all very nerve racking but everyone knows the rules of the game.

In a Buyers real estate market it isn't quite so easy. For one thing the rules are not always clear. Advice on buying a home is everywhere...no one should buy a house for at least 5 years anywhere.....the market is crashing and anyone who buys now will regret it when prices drop further...... soon ocean front property will be at 1990 levels if you just wait. What you may not realize is that a lot of the advice is being given by people who either can't afford to buy or who may never buy. You may be afraid that you might pay too much and wind up losing a lot of money or worse yet look foolish to your friends. Human nature tell us we want to talk about the deal we got on a house and how smart we were about the local real estate market. The problem is that while there are deals out there you may not recognize them immediately.

Another difficulty is that all real estate markets are local and some will fare better then others. In the current housing market there will be markets that go down, markets that go up and markets that go up and down and then are flat. Prices are softening and some areas are going to be in for a real blood bath but not everywhere. Home prices in Manhattan Beach may drop 10% while home prices in Palmdale will likely drop at least 50% because of the foreclosure problems in that area. They are not the same market and different rules will apply.

One of the things I've noticed when reading consumer blogs is that a lot of the people commenting on the local market don't live in the area.. some don't even live in the same state. Many buyers think that because the market has changed from a strong Seller market to a Buyer market the world is theirs .. so to speak. The media has distorted a lot of information to a point that buyers believe all they need is a little cash and a decent credit score and they can pretty much offer what they want and sellers will be begging to take their offers. A lot of buyers are sadly disappointed.

Certainly some sellers are unrealistic when it comes to the value of their home. I can think of a number of properties in the Beach Cities priced well over market value. They have been on the market a long time and may continue to be on the market even longer if their asking prices don't get more realistic. However there are also a number of homes that have come on the market priced at market value. These properties sold quickly.. often with multiple offers and sometimes over the list price. The difference is buyers perceived these properties to be at or slightly under market value.

Here are 3 tips for buying a home in a Buyers market:

1. Know Your Market: It doesn't matter what the market is like where your brother-in-law lives.. you need to know what is happening in your market. There is a big difference between a home that has sat at $ 1.9 for 7 months and is worth $1.5 and a home that comes on the market at $1.7 and could easily sell for slightly more. A 1600 sqft 3 bedroom 2 bath completely remodeled home in the Trees on a great street priced under $1.4 million is probably going to sell in 20 minutes. If you offer $1.2 because you know prices are going to drop drastically.. you will not be the new owner. Who made the right decision.. you may have to wait 5 years to get the answer.

The same is true in the North Redondo townhome market. Right now a 2 on a lot townhome in North Redondo with a private yard in good condition built prior to 2000 is not selling unless the price is below $790,000. Every property that has gone into escrow in the last 6 weeks has been $720,000-$785,000 because that is where the market finds value. Properties priced at that level are selling.. those over are sitting. If you only want to spend $675,000 and want a yard...look at the rear unit of a three on a lot. Know the market.

2. Be Realistic...Buy What You Can Afford: Wow.. this seems to make sense but it's surprising how many people don't do it. Too many buyers want to buy the home their parents finally ended up with rather then the one they started with. Buyers don't understand that they may be better off buying a small condo in Hermosa or Redondo then a new house in a marginal location. Your first home doesn't need to be 3000 sqft in the trees. Buy a starter home or townhome in North Redondo, Torrance or Holly Glen... build a little equity... then move up to a different home. It may take a few years to get to where you ultimately want to live but you won't be in trouble along the way.

3. Get Pre-Approved for a loan: You really need to know what your credit profile looks like to a lender. You may get 40 offers of credit a week from Cards 'r Us but that doesn't mean you qualify for a prime interest rate on a home loan. Sometimes there are mistakes on your credit that can take time to fix. You should have at least 10% and ideally 20% plus closing costs for a down payment. There are still a number of different loans that are available to consumers but the guidelines have gotten tougher in the last three months. You need a current evaluation of your financial picture. You may have qualified for $XXX in June but today you may only qualify for $XX. Interview a few lenders. Ask questions about fees and rates. There isn't a lot of difference in rates. If the market rate is 6.5% for the loan you need ... no one is going to give you the same loan for 5.5%. If it's too good to be true... it is too good to be true.

Finally... Find a Good Agent( you thought I would say something else?)..... Contrary to all the hype there are good agents out there. Part of your job is to find one. A good agent knows the market. A good agent will help you find the right house and will tell you the truth. You may not like what you hear but that's another story.

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